April 29, 2013

Low-Wage Workers Will Benefit From Immigration Reform, Too

In a recent article, John Judis makes many excellent points about poorly compensated work in America. But he mischaracterizes the role that immigration, in general, and the “Gang of Eight"s immigration reform, in particular, is likely to have on the wages of American workers. Contrary to what some claim, immigration has economically benefitted U.S. workers. Moreover, thoughtful immigration reform that includes legal status and a pathway to citizenship for the 11 million unauthorized immigrants will lead to sizeable increases in output and incomes and modest increases in jobs. The earnings of unauthorized immigrants will rise significantly and the taxes they will pay will increase dramatically, benefitting the nation as a whole.

How can that be, especially when simple intuition would dictate that lesser-skill immigrants (even the newly-legalized) compete for American jobs and put downward pressure on wages? The answer is that the economy is a much more complex system than some would have us believe.

There are three main reasons why economists have found positive benefits from immigration: 1) immigrants are not only workers but also consumers 2) immigrants have little direct impact on the wages of American workers and 3) immigrants often complement, rather than compete with American workers.

First, and perhaps most importantly, immigrants are not simply workers but consumers; they buy goods and services, helping to drive business sales across all sectors of the economy. Immigrants also tend to be entrepreneurial, starting new businesses and hiring workers at higher rates than the native born. They make basic services more affordable to Americans. The narrow research Judis relies upon fails to fully consider these long-run impacts on our economy and therefore ignores the basic fact that over time the wages of American workers will rise with immigration.

Second, even when focusing only on the wages of lesser skilled American workers, the latest economic research illustrates that immigration has no discernible direct effect, even in the short run. Judis cites a research paper by economist George Borjas written a decade ago. While Borjas is a respected economist, his work has been superseded by a number of new studies that rely upon much better methodologies.

The best, new research we have now is exemplified by the work of Economists Gianmarco Ottaviano and Giovanni Peri. Their research finds that immigration has had essentially zero net effects on the wages of low-wage U.S. workers. To the extent that it has had any effect on wages at all, the most thorough recent research suggests that immigration has had a small positive impact on the wages of lesser skilled native born Americans.

The reason why there is essentially no impact on the wages of lesser-skill workers brings us to our third point: Most lesser-skilled immigrants do not compete with U.S. workers but instead complement their work. In some areas of the economy, lesser skilled immigrants have kept entire industries alive: Many parts of U.S. agriculture would have more thoroughly mechanized or had to close up shop years ago if not for lesser-skilled immigrant workers who pick the crops, meaning the loss of nearly all U.S. jobs (those held by native born Americans as well as those of immigrants) in those sectors.

Recent research has shown that low-skill immigrants complement U.S. workers in many ways that are less obvious. Patricia Cortes of Boston University has shown that low-skill immigrant workers encourage skilled American women to enter the labor force—by making childcare more affordable. Jennifer Hunt of Rutgers and the U.S. Department of Labor has found that low-skill immigration encourages high-school completion by U.S. natives, by raising the relative return to staying in school. Both of these forces make the whole U.S. economy more productive, and that generates jobs for low-skill Americans too.

Judis claims that legalizing the 11 million unauthorized immigrants living in the U.S. would “thrust [them] into the mainstream labor market, where they will compete with native-born workers.” But research indicates that legalizing these aspiring Americans would help our economy. Legalization would allow unauthorized workers to find jobs that best match their skills, increasing the productivity of our workforce and increasing the earnings of all Americans. Specifically, this research found that legalization adds a cumulative $832 billion to the U.S. economy over a decade, increases the earning of all Americans by $470 billion, generates an additional $109 billion in new tax revenue, and creates an average of 121,000 new jobs each year, benefits that accrue to all Americans.

Providing unauthorized workers with legal status also increases their bargaining power and lowers the likelihood of worker exploitation and suppressed wages. To the extent that they do compete with American workers, legal status will raise the wages of both the unauthorized and lesser skilled American workers. So yes, by all means, let’s “thrust” the illegal immigrants into legal status.

Our nation was founded and built by immigrants and continuously reinvigorated by wave upon wave of migrants from all around the world. Every job that everyone has, from janitor to biochemist, owes a debt to a legion of immigrants that made that job possible. For the sake of our economic future we need to continue experiencing the benefits of immigration—benefits that accrue to all Americans, including our lowest wage workers.

Michael Clemens is a senior fellow at the Center for Global Development. Robert Lynch is professor of Economics at Washington College and senior fellow at the Center for American Progress.